Why isn’t digital marketing success measured by lifetime value?
Trent Lloyd reminds marketers of the importance of targeting primary customers and lifetime value as a measure of success in digital advertising.
When you think about it, digital advertising got off to a bad start. It sold itself on price. In particular, the cost-per-click. As a medium we argued that you only paid for results, whereas in traditional media you paid for the audience.
Because digital advertising could evoke a direct response, we assumed that this was the key measure of success. Google built a business model on it and the rest of the industry followed.
Admittedly, we have moved on since then and it is accepted by most people that ad impressions count. Digital can help build brand as much as TV or press, and the old principles of reach and frequency are as important as ever. But the focus is still on reaching as many people as possible, with the lowest cost per thousand.
Any marketer worth his or her salt knows that the key measure of success is lifetime value. How much does a customer contribute to the profit of a company during the time they are with them. It is driven by how much they spend, how often they buy, the margin of the products they consume, and how long they remain loyal. Marketers can accept a high acquisition cost if they know the customer will be worth having.
The focus in the advertising world is often counter to that: the assumption is often that all customers are equal. We talk about targeting and use rich data sets to lower the cost of reaching an audience, but often the emphasis is on anyone we think will buy the product, not who will create the greatest long term value for the brand.
In fact, low value customers can be damaging. A friend who headed the marketing department of a large internet service provider explained to me how low value customers could be targeted easily and won over with cheaper prices, but they would frequently call for technical support, never bought upgrades and would churn to another provider if a better offer came along.
The exact same product could create significantly higher margins from customers who bought higher plans, did not need much in the way of support, were open to upgrades and remained loyal for many years.
I wonder how many digital campaigns are truly planned on the basis of achieving the best lifetime value?
Achieving this outcome obviously relies on data. Planners need to understand the variables that define a customer with a strong lifetime value. That has to come from analysis of the brand’s own customer information, with data points that can be mapped to campaign planning criteria. It is likely to place a greater emphasis on demographic information in a world which has increasingly focused on behavioural data.
It will also see campaigns focused more tightly and a shift in thinking of how many people we really want to reach. Here is an example of what I mean by that. Traditionally we might have identified a primary market, then boosted a campaign’s reach because it seemed cost effective to extend it and enjoy the benefit of scale.
The issue is, do we want the secondary market? In the case of the internet company, those extra customers, even though they cost less to acquire, might cost more to service. There is a very real possibility that extending a campaign might actually cost the client in the long run. In this situation the marketer would prefer to focus on the primary audience, even if it means a much higher cost per thousand for the campaign.
This, I believe, is the evolution of advertising. It could mean fewer ads, with a focus on quality. With this approach the advertiser and the consumer both win. The brand gets customers who generate the best return for their business, the consumer sees fewer ads.
It would mean advertising yield will increase, with a huge reliance on meaningful data. And, it requires publishers to think life marketing people, not sales people. All eminently achievable and, I am sure you will agree, a long way from the industry‘s roots in pay-per-click.
Trent Lloyd is co-founder and GM publisher development at Eyeota.